Comptroller Kevin Lembo today, in his first monthly budget and economic
outlook report since the COVID-19 pandemic first emerged in Connecticut, said
the state is currently on track to end Fiscal Year 2020 with a General Fund
deficit of $170 million – although the ongoing and rapidly changing conditions
will demand close monitoring and scrutiny in the coming weeks and months.

“The speed and scale of the pandemic’s economic disruptions are unprecedented
for Connecticut,” Lembo said. “As a result, the full extent of the impact is not
yet clear and may take weeks, if not months, to determine. The current year
deficit could, and likely will, grow larger. My office will continue to monitor
the situation closely and update these projections in future reports.”

In a letter to Gov. Ned Lamont, Lembo commended the Governor and his
administration for their leadership and dedication to the people of Connecticut
during the COVID-19 crisis and reinforced the need for continued support to
minimize the impact of this pandemic on Connecticut families during and beyond
this response.

“My office is already seeing a drop-off in withholding receipts from the
large number of layoffs and furloughs resulting from non-essential business
closures related to the state’s response to the COVID-19 pandemic,” Lembo said.
“In addition, we are reducing the sales tax estimate by $30 million, again due
to coronavirus-related business closures and shelter-at-home directives.”

On the spending side, Lembo said his office is largely in agreement with
OPM’s projections at this point – although he acknowledged that the state’s
response measures related to the coronavirus is an evolving situation, which
means projections must be revised as more information becomes available.

Lembo said that the state’s efforts to rebuild its Budget Reserve Fund (BRF)
in recent years has proven essential at this time. The state’s statutory revenue
volatility cap, which requires revenue above a certain threshold to be
transferred to the BRF – often referred to as the “rainy day fund” – is $3.3
billion for estimated and final income tax payments and revenue from the
pass-through entity tax for Fiscal Year 2020.

Recent economic disruptions, stock market losses and extensions of various
tax filing deadlines demands that these projections be revisited as the fiscal
year progresses. However, at this point, Lembo said the updated BRF outlook
includes the following:

A $318.3-million volatility transfer
would be made to the BRF at the close of the fiscal year;

The balance of the BRF currently stands
at $2.5 billion;

Adding the estimated $318.3-million
volatility transfer, less the projected FY 2020 deficit of $170 million, would
bring the year-end BRF balance to approximately $2.65 billion;

This balance, if achieved, would
represent approximately 13.3 percent of net General Fund appropriations for FY
2021 (Lembo has long recommended the state maintain a Budget Reserve Fund at 15
percent).

“The state has made enormous progress in building the Budget Reserve Fund
balance over the past two years,” Lembo said. “That effort required sacrifice
and discipline. Now, as the state faces an unexpected public health and economic
crisis, Connecticut is better positioned to meet the challenge.”

Regarding the outlook of future federal and state response to the COVID-19
crisis, Lembo said that, to date, three federal emergency spending bills have
been enacted by Congress that will provide financial resources to Connecticut to
combat the coronavirus and the associated economic damage. This includes the
$2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARE) Act, signed
by the President on March 27. According to a Federal Funds Information for
States (FFIS) analysis, Connecticut is projected to receive $2.36 billion in
CARE Act funds. As millions of Americans and thousands of Connecticut residents
lose their jobs in the economic fallout of the COVID-19 pandemic, Lembo said
that sustained support will be needed, including:

Expanded unemployment insurance;

Support for businesses, especially
small and medium sized businesses, to maintain jobs and keep employees on the
payroll;

Increased aid for state and local
governments, as well as for hospitals, other health care providers and first
responders to deal with the ongoing public health crisis.

“The scope and suddenness of this crisis is without precedent in living
memory,” Lembo said. “Therefore, relief needs to be provided quickly and be
sustained over time to prevent even more harm, especially for those most in
need. The recovery will be difficult and uneven. The biggest risk for policy
makers is not doing too much, but rather doing too little in the face of these
enormous challenges.”

Connecticut’s budget results are ultimately dependent upon the performance of
the national and state economies, and virtually all economic measures look back
at past periods. In the present situation, therefore, Lembo said some economic
indicators presented in this report may appear inconsistent with more recent
developments in the rapidly changing response to the COVID-19 pandemic.

Connecticut and the nation saw a historic spike in initial unemployment
insurance (UI) claims in recent weeks as coronavirus concerns forced numerous
businesses to close in support of public health-related social distancing
efforts. In the economic summary to follow, Lembo provides more in-depth details
– however, according to the U.S. Bureau of Labor Statistics (BLS), initial UI
claims for Connecticut increased 630 percent (from 3,440 to 25,098) for the week
ending March 21. Jobless claims continued to surge as more claims poured into
the Connecticut Department of Labor (DOL) on a daily basis.